The right of return amongst guarantors

Nowadays, given the increasingly greater financial difficulties of individuals and companies alike, the issue of guarantees as security for obligations is gaining particular significance, especially when ever-more impatient creditors are keen to recover amounts owed to them more quickly and as easily as possible.

The importance that guarantees as security for obligations have in a highly depressed economic context – such as ours – is well known: most commercial transactions do not take place without them, as creditors today have learned a lesson for the future from cases where, done differently, things did not turn out so well.

It is important to analyse the reply to the following questions: what happens when in cases of breach of certain commercial transactions and where there are several guarantors, the creditor demands the entire outstanding amount from one single guarantor because the guarantor in question is the most solvable and possesses “easily” attackable assets. What happens with the other guarantors? Do they cease to be liable? Does the one who “pays for the others” have any right that deserves to be safeguarded against his “co-guarantors” who paid nothing?

The issues described above are the backdrop for our day-to-day lives: consider, for instance, how common it is for the various owners of a company to be, the vast majority of the time, guarantors for the commercial transactions of the company.

All of this serves to bring us to the discussion, owing to its urgency, of the importance of a recent decision of the Supreme Court of Justice (ruling 7/2012, published in the Portuguese Official Journal (Diário da República) on 17/07/2012), of which certainly few will have heard about, but which is not only of extreme relevance to justice in this country (it is the solution to many of the cases that remain pending in our courts today) but also to the protection and safeguarding of the rights and interests of those who answer exclusively for debts when they should not do so.

What is new about this decision? The uniformisation of court jurisprudence on the issue of the right of return amongst guarantors who provide a creditor with a guarantee by means of a promissory note, a document which usually serves as security for a commercial transaction.

The decision does not have “force of law”: however, this uniformisation has the merit of being, as stated therein, a “qualified judicial precedent”, contributing, as Abrantes Geraldes says, to the “lessening of the degree of uncertainty and insecurity about the remedy for given legal issues”.

A guarantee is an exchange transaction for which the legal regime stems from the Uniform Law for Bills of Exchange and Promissory Notes. This law governs the liability of a guarantor to his creditors and the exercise of his right to reimbursement against the person secured or against other obligees in the chain of liable persons: it makes no provision for any right of return against the various guarantors of the same creditor.

For this reason and in respect of this absence of any provision, court jurisprudence branched into two contradictory approaches. These were:

1 – if there is no agreement in this respect between the guarantors, the right of return is admitted in exactly the same way as if there were a number of sureties (Article 650 of the Civil Code) given the points in common between these two figures;

2 – the other makes the right of return dependent on a specific agreement between the guarantors.

The uniformising judicial decision opted for the first of the above approaches, which has its roots in the common law: this remedy applies in the event of the silence of the parties as to any agreement otherwise.

Thus, the view taken, and rightly so in our opinion, was that since the disciplining of this issue refers back to the common law regarding internal relationships between the guarantors, there are no reasons that would obviate the applicability of the provisions on joint obligations, which translate into the admissibility of the right of return and the distribution of liability according to the presumption that the various obligees answer equally for the debt.

This concept is rooted in principles of material justice and a correct sharing of liabilities. To consider otherwise would be to endorse an asset imbalance between persons who place themselves, initially and, let us reiterate, if no agreement to the contrary is established between them, at the same level of liability vis-à-vis the creditors.

As Pais de Vasconcelos states, having provided the guarantee, guarantors “cannot then forget that they may have to pay it”.

João Carlos Teixeira